Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
If a Small Business Investment becomes a Public Corporation, would an RRSP or RRIF be considered over the maximum allowable for the purposes of foreign content limit as per s.s. 206(1).
Position:
No, subject to all s.s. 206(1) requirements.
Reasons:
No restriction in the Act.
972343
XXXXXXXXXX Fouad Daaboul
Attention: XXXXXXXXXX
November 6, 1997
Re: Foreign Content Limits within RRSPs and RRIFs
This is in reply to your letter of August 27, 1997, and our telephone conversation (XXXXXXXXXX/Daaboul) of September 12, 1997 in which you ask about the consequences of an investment that was a Small Business Investment ("SBI") held in a trust governed by a registered retirement savings plan ("RRSP") or registered retirement income fund ("RRIF") no longer qualifying as an SBI.
Pursuant to subsection 206(2) of the Income Tax Act (the "Act"), a taxpayer (as defined under section 205 of the Act and including a trust governed by RRSP or RRIF that holds foreign property in excess of its foreign content limit is required to pay a Part XI tax. Your question relates to paragraph 206(2)(c) of the Act which increases the foreign property limit by three times the small business investment amount, to a maximum increase of another 20% of the cost amount of all property of the taxpayer. The small business investment amount is defined in subsection 206(1) of the Act basically as the average cost amount of the small business properties for the last three months. When an investment ceases to be a small business property it may reduce the foreign property limit of the taxpayer but its effect will be phased in over three months because of the three month average. If a taxpayer exceeds its foreign property limit at the end of a month it will be subject to Part XI tax on the excess as determined by subsection 206(2) of the Act.
A small business property is defined in subsection 206(1) of the Act and in the Income Tax Regulations and its definition is beyond the scope of this letter, however, a share of a private corporation that is a small business property will not cease to be one because, in and by itself, the corporation has become a public corporation.
The foregoing comments are not rulings and in accordance with the guidelines set out in Information Circular 70-6R3 dated December 30, 1996, are not binding on the Department.
We trust our comments will be of assistance to you.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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